Insider Media Limited

Unsecured creditors of Brilliant Media Group are unlikely to receive all of the cash they are owed following the collapse of one part of the advertising business.

A new report has revealed that a shortfall is expected within that part of the business, Brilliant Media Group Ltd, after the loss of major customers, a tax liability and the threat of reduced credit from suppliers tipped Brilliant into administration.

The business was subsequently sold for a nominal sum to MediaCom in a pre-pack deal currently under review by the Office of Fair Trading (OFT).

Bob Maxwell and Rob Sadler from Begbies Traynor were appointed joint administrators of Brilliant Media Group on 1 December and immediately completed a sale to MediaCom, a subsidiary of WPP, saving 82 jobs. A nominal sum of £1 was paid although MediaCom took on liabilities of more than £2.1m.

However, a report by Begbies, seen by Insider, reveals that it is unlikely unsecured creditors of Brilliant Media Group Ltd will receive any money. In total, based on the directors' statement of affairs document, those losses stand at £7.8m. But funds are expected to be raised from other parts of the Brilliant business.

Secured creditors PNC Business Credit and WH424, owed £892,362 and £1m respectively, according to directors, are expected to be paid back in full.

According to a commentary provided by directors, Brilliant's problem stemmed from consolidation in the media sector as all its main independent rivals were bought by multinational media advertising businesses.

Operating as the UK's largest independent with trading divisions in Manchester and Birmingham, Brilliant found its competitors were aggressively targeting clients as spend declined within the UK's recessionary advertising market, the directors added. This situation was exacerbated by specific clients, including TJ Hughes, going into administration.

In accounts for the year to 31 March 2011, Brilliant Media Group posted a net loss after tax of £5.5m on turnover of £143m, including exceptional costs of £5m.

The company first experienced financial difficulties after the loss of its largest customer, DFS, to a rival in February 2011. DFS had accounted for about £36m of sales in 2010/11. The company also lost its second largest customer, Asda, to Carat, in the same month.

BTG was consulted by the group in March about restructuring options and Brilliant did arrange a working capital facility in March 2011. But market rumours during the restructuring process about a possible sale scared off previously loyal customers

In November 2011 a tax liability of £3m, three times the amount expected, was established. This had not been included in previous cash flow forecasts and in the same month another significant customer, Safestyle, was lost to Carat.

It was decided the business had insufficient cash to continue trading and negotiations began with MediaCom. The WPP subsidiary had expressed interest in the first quarter of 2011 and was the only potential acquirer Brilliant's management would enter into contract negotiations with, according to administrators.

That deal is now being looked at by the OFT, which has issued an Invitation to Comment notice, requesting submissions by 10 February.